Monday
Jun022008

Yield Hunters Struggle

Those that have owned the Dow Jones Dividend Select ETF (DVY) over the last year know that dividend stocks have severely underperformed the overall market.  Below we highlight a chart comparing the price change of SPY and DVY since the start of 2006.  As shown, the two traded pretty much inline with each other until the credit crisis hit dividend-paying financial stocks last summer.  Investors looking for a nice yielding dividend ETF have gotten anything but that over the past year with DVY.

Spydvy

Monday
Jun022008

Homes -- Buy One, Get One Free

A San Diego developer recently offered a "buy one, get one free" promotion on homes in Southern California.  From a recent article at 10news.com:

Michael Crews Development is offering new, 2000-square foot cityscape row-homes worth $400,000 in Escondido for free -- if you buy one Royal View Estate home in San Pasqual Valley starting at $1.6 million.

Times are definitely tough in real estate land.

Buyonegetone

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Monday
Jun022008

Dow 30 Now Underperforming S&P 500 For The Year

After outperforming by a pretty large margin for most of the year, the Dow Jones Industrial Average is now underperforming the S&P 500.  As shown below, the Dow 30 is now down 6.12% in 2008 versus -6.01% for the S&P 500.  With AIG, MRK and GM all down more than 30% this year, and C and MSFT down more than 20%, it's not hard to see why the Dow is now struggling.  At the start of the year, not too many people thought they would be thanking Wal-Mart (WMT) for holding the index up.

Dowspx

Dowmembers_2   

Monday
Jun022008

May ISM: The Good and Bad News

Today's ISM report for the month of May was notable for two reasons - one good and one bad.  First the bad news.  For the fourth month in a row, the report came in below 50, which indicates four straight months of contraction.  Looking at prior periods where the ISM went negative for four straight months shows that it typically remains weak for months to come and has always continued to contract during the fifth month.

Ism_four_month_losing_streaks_2

Now the good news (or at least the less bad news).  With a reading of 49.6, even though today's ISM report showed an economy in contraction, it was still an upside surprise given the consensus forecast of 48.5.  This is the fifth straight month that the report managed to beat expectations and represents the longest streak of stronger than expected ISM reports in at least 10 years.  While the weak readings in the ISM are not positive for the long-run performance of the market, the fact that the extent of the weakness to this point has been consistently overestimated helps to cushion the blow.

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Monday
Jun022008

May Sector and Stock Returns

As shown below, Technology was the best performing sector in May with gains of 5.5%.  Materials came in 2nd at 4.6%, followed by Telecom, Energy and Utilities.  Financials stunk up the joint again with a decline of 6.4% in May.  Every other sector was up, so banks and brokers definitely held the index back.

Maysector 

Below we list the 20 best and worst performing stocks in the Russell 1,000 for the month of May.  Patriot Coal (PCX) was the best performer at 63.7%, followed by Continental Resources (CLR), W&T Offshore (WTI) and Compuware (CPWR).  On the downside, LCC, LNG, UAUA and IMB led the declines in May.

Maystocks

Maystocksdown 

Monday
Jun022008

Bespoke's Commodity Snapshot

Below we have updated our trading range charts for ten major commodities.  The green shading represents 2 standard deviations above and below the commodity's 50-day moving average.  When prices move above or below this range, we consider the commodity overbought or oversold.  As shown, oil's pullback from $135 to $125 barely shows up on its price chart.  Oil is now trading just at the bottom of the short-term uptrend channel formed earlier this year.  The commodity hasn't even been close to oversold since the start of February, and it would have to go all the way down to $98 to be oversold based on its current range. 

Like oil, natural gas is also close to the top of its trading range, but the rest of the commodities we highlight have pulled back recently and are closer to oversold levels.  Copper is the most oversold, while precious metals are getting close to the bottom of their ranges.  Wheat and orange juice continue their downtrends, while corn and coffee are just about neutral.

Oilnatg

Goldsilver

Platcopp

Cornwheat

Ojcof

    

Friday
May302008

This Week's B.I.G. Tips Reports at Bespoke Premium

Below we provide the titles of the in-depth B.I.G. Tips reports we released this week.  If any spark your interest, they are all available to our Premium subscribers.  These are anticipatory, ahead-of-the-curve research reports that cover markets, economies, stocks, commodities, housing and anything else related to making people money. 

This week's B.I.G. Tips reports: The Week In Review (summarizing the week's events), First of the Month (strong performance to start the month?), DELL EPS Reports (typical stock performance), Brokerage Short Interest (short interest picks up significantly), June Seasonality (market performance during the month of June), Screen of the Week (top retail stocks), XOM Down 4 Days In A Row (what happens next?), Consumer Confidence (surprising market results when things get this bad), Chicago Fed Business Index and Recessions (does the market listen?).

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Friday
May302008

Weekend Reading: Technical Analysis Using Multiple Timeframes

Shannonbook_2 We recently read Brian Shannon's new book, Technical Analysis Using Multiple Timeframes: Understand Market Structure and Profit from Trend Alignment.  As the title of the book suggests, Brian is a believer in trend trading.  For those unfamiliar with Brian's work, he does some unique analysis on his Alpha Trends blog site where he has done a great job of combining YouTube and technical analysis in order to analyze and explain his thoughts regarding specific stocks.  We definitely suggest taking a look at his site.

In the book, Brian does a good job of clearly explaining his methods and approaches to technical analysis without the incoherent jargon typically associated with some books.  He also highlights numerous examples using clear and coherent charts, making this book is an excellent resource for anyone looking to add to their investment 'toolkit'.  Brian closes the book with a chapter titled, "Trading Tips and Truisms To Think About".  Our favorite on the list?  "Smart Money" doesn't always do smart things with their money.

Friday
May302008

Global Interest Rates

Views towards the run-up in the yield on the ten-year US Treasury are split.  Equity bulls say that investors are allocating out of bonds and into stocks, which are cheap relative to bonds.  Equity bears, on the other hand, say that the sell-off in bonds reflects the realization on the part of investors that inflation is out of control, which is ultimately bad for stocks.  One point that can't be argued though, is that the recent trend of rising yields is not just confined to the US, it's global.  Furthermore, relative to the moves in some other markets, the move in yields of US Treasuries has been minor.

The charts below show the yield on ten-year treasuries for six major markets.  As shown, so far during this move, the yield on the ten-year US and Canadian treasuries remain well below their levels from late 2007.  However, the yields on the ten-year notes of the Euro region, UK, Australia, and Japan are at or above their levels from six months ago.

Interest_rates_1

Interest_rates_2 Interest_rates_3

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Friday
May302008

3% Down Days in Oil

While yesterday's 3% decline in the price of oil has many oil bears celebrating that the top is in, we would note that yesterday's decline was the 29th one day decline of 3% or more in the last two years.  Looking back at those prior occurrences shows that the average return of crude oil the following day is 0.58% with positive returns 75% of the time.  Some would argue that yesterday was different given the large drop in oil inventories, but until proven otherwise, the bulls have history on their side.

Oil_down_3_percent

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Thursday
May292008

Rising Interest Rates: It's Global

Earlier today, we highlighted the rising interest rates in the US based on the 10-Year US Treasury.  But a look at global interest rates shows that they are rising all over the world.  In Japan rates are rising at an even faster pace than they are in the US.  As shown below, the ratio between the yield on 10-Year US Treasuries vs. the yield on 10-Year Japanese bonds recently reached as low as 2.2 times i.e., the yield on the US Treasury is just over twice the yield of the Japanese Treasury.  You have to go back to 1999 to find the last time the ratio was this low.  What's next?  Parity?

Us_vs_japan_yield

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Thursday
May292008

Energy Inventories Show Largest Drop Since 2004

This morning's inventory report from the Department of Energy showed the largest weekly drop (8.88 mln barrels) in crude oil stocks since September 2004.  As shown in the chart below, crude oil inventories are now over 20 million barrels below their historical average.  Oil, which had been trading down by over $2 quickly reversed to a gain of over $1.

Crude_oil_inventories052908

Thursday
May292008

Sector Relative Strength

Below we have updated our charts of sector relative strength.  In each chart, rising lines indicate periods where the sector is outperforming the S&P 500.  Charts with red shading indicate that the sector has underperformed over the last year.  Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August.  We have also included a chart of the relative strength of the Transportation sector versus the S&P 500.  While it has not been considered an 'official' sector since 2001, we thought readers would be interested in seeing the chart given the recent attention on the sector in the face of higher oil prices.

While the economy remains weak, sectors that typically benefit from a weak economy have not been faring particularly well.  Recent action in the Consumer Staples and Health Care sectors has been nothing short of poor in recent weeks.  Additionally, Telecom Services and Utilities continue to run into resistance at current levels.  It's not just defensive sectors that have been acting poorly though.  Financials remain in a pronounced downtrend, and with things going the way they have been going, the lower end of its range seems inevitable.  The Industrials sector has also been showing weakness lately.  This sector had been a stalwart through the energy crisis, but recently broke slightly below support, so the potential for additional weakness in that sector exists.

On the positive side, Consumer Discretionary stocks have been consolidating their outperformance and continue to hold support.  Barring any additional weakening of the economy, this sector should move higher.  Energy's uptrend keeps steepening.  While the upper end of the range has remained roughly intact, as shown in the chart, the bottom end of its range has been steepening.  Finally, Materials and Technology continue to trade in nice uptrends.  Although both of these sectors are trading at the upper end of the range, any weakness in them as they approach resistance is likely to be temporary.

Relative_strength_052908a

Relative_strength_052908b

Relative_strength_052908c   

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Thursday
May292008

Deja Vu: Ten-Year US Treasury Yields

As the yield on the the 10-Year Treasury climbs above 4% for the first time this year, we couldn't help but notice how the path of long-term interest rates bears a striking similarity to last year.  The one major difference seems to be that this time less people are talking about it.  Last year, there was near hysteria when long term interest rates rose to their highs of the year and above 5%.  This year, rates are once again at their highs of the year (although 100 bps lower), but this time around it's not nearly as big a story...yet.

Te_year_yield_053008

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Wednesday
May282008

Breadth Sits in Limbo

Below we highlight our trading range and 10-day advance/decline line charts of the S&P 500.  As shown, the S&P 500 is resting nicely just above its 50-day moving average, while breadth levels (A/D line) sit in limbo just below the neutral line.  Over the next few trading days, the market should pick up steam in either direction as investors decide which way to take this market in the short term.

Spxtradingrange_2

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